China's money rates down; c.bank net drain offset by MLF operations

Reuters Staff

6 Min Read

SHANGHAI, Oct 14 (Reuters) - China's primary money rates largely lower for the week on
Friday as the impact from a central bank-led net drain was offset by liquidity support through
its medium-term lending facility (MLF), and market expectations of more MLF operations in the
weeks ahead.
The volume-weighted average rate of the benchmark seven-day repo traded in the
interbank market, considered the best indicator of general liquidity in China, was 2.2941
percent, 28.51 basis points lower than previous week's closing average rate.
Money conditions loosened at the beginning of the week as pressure from seasonal factors and
holiday demand eased after a week-long national day holiday. By the end of the week, however,
liquidity was slightly tight after a central bank-led net weekly drain of funds, traders said.
The People's Bank of China (PBOC) drained a net 415 billion yuan ($62.23 billion) from the
market through open market operations this week, compared with a net drain of 420.1 yuan for the
week ahead of the holiday.
The central bank skipped 14-day reverse repos operations since Thursday after resuming the
tenor in late August for the first time in six months.
"The suspension of the 14-day tenor has had a limited impact on the market, much of the
liquidity pressure is coming from the shrinking amount," said a trader at a Chinese bank in
Shanghai.
Consensus in the market is that the central bank is unwilling to foster excessive lending
via short-term facility due to worries about stoking a financial sector bubble.
The PBOC injected 301 billion yuan to 18 financial institutions for six months and one year
via its MLF on Thursday, while 259.5 yuan of loans matured on the same day. There will be
another 298 billion yuan loans maturing later this month, according to Reuters calculations
based on the data from the central bank.
The MLF is a supplementary policy tool the central bank uses to manage conditions and
medium-term interest rates in the banking system and money markets.
Traders said they expected additional loans via the MLF in the next two weeks.
"The market is dependent on the central bank's liquidity injection, if the amount of next
MLF injection is less than expected, the liquidity will tightened up again," the trader said.
The Shanghai Interbank Offered Rate (SHIBOR) for seven-day tenor fell to 2.3740 percent,
10.3 basis points lower from the previous close.
The one-day or overnight rate stood at 2.1220 percent and the 14-day repo stood at 2.4632
percent.
The spread of the five-year credit default swap rate on Chinese sovereign debt
rose 1.34 percent at 107.79.
Key money rates at a glance:
Volume-wei Previous Change (bps) Volume
ghted day (%)
average
rate (%)
Interbank repo market
Overnight 2.1220 2.1151 +0.69
Seven-day 2.2941 2.3035 -0.94
14-day 2.4632 2.4434 +1.98
Shanghai stock exchange repo market
Overnight 2.6800 3.0250 -34.50 155,531.2
0
Seven-day<CN7DR 2.4950 2.0300 +46.50 18,756.40
PO=SS>
14-day 2.4750 2.4000 +7.50 1,517.00
PBOC Guidance Rates
Overnight 2.1400 2.1200 +2.00
<CN1DRPFIX=CFXS
>
Seven-day 2.4000 2.4100 -1.00
<CN7DRPFIX=CFXS
>
14-day 2.5200 2.6000 -8.00
<CN14DRPFIX=CFX
S>
SHANGHAI INTERBANK OFFERED RATE
Overnight 2.1530 2.1510 +0.20
Seven-day 2.3740 2.3780 -0.40
Three-month 2.8025 2.8025 +0.0
KEY INTEREST RATE SWAPS:
Instrument RIC Rate Spread vs 1 yr
official deposit
rate*
2 yr IRS based on 1 CNABAD2YF= 0.0000 -1.5
year benchmark
5 yr 7-day repo swap CNYQB7R5Y= 2.7400 n/a
*This spread can be seen as a proxy for forward-looking market expectations of an interest rate
cut or rise
China FX and money market guide:
China debt market guide:
SHIBOR rates:
Reports on central bank open market operations:
New Chinese debt issues:
Prices for central bank bills, treasury bonds and sovereign bonds:
Overview of China financial market data:
($1 = 6.6685 Chinese yuan renminbi)
(Reporting by Winni Zhou and Nathaniel Taplin)